Balance of

Payment (BoP)
Presented by
Parvathy.M.U
 Definition
“The Balance Of Payments of a country is a
systematic record of all economic
transactions between the ‘residents’ of a
country and the rest of the world. It presents
a classified record of all receipts on account
of goods exported, services rendered and
capital received by ‘residents’ and payments
made by them on account of goods imported
and services received from the capital
transferred to ‘non-residents’ or ‘foreigners’.”
– Reserve Bank of India (RBI)
 Importance of BoP
 The BoP is an important indicator of pressure on
a country’s foreign exchange rate .

 The BOP helps to forecast a country’s market

potential, especially in the short run.

 Changes in a country’s BOP may signal the

imposition or removal of controls over payment of
dividends and interest, license fees, royalty fees,
or other cash disbursements to foreign firms or
investors.
 Contents of BoP
 Current account
 Capital account

 Financial account

 Net errors and omissions account

 Reserves and related items:

official reserve account

 Current account
 Net export/import of goods (trade balance)
 Net export/import of services
 Net income (investment income from direct
and portfolio investment plus employee
compensation)
 Net transfers (sums sent home by migrants
and permanent workers aboard, gifts, grants
and pensions)
 Capital account
 Capital transfers related to the
purchase and sale of fixed assets
such as real estate
 Financial account
 Net foreign direct investment
 Net portfolio investment

 Other financial items

 Net errors and
omissions account

 Missing data such as illegal

transfers
 Reserves and related
items: official reserve
account
 Changes in official monetary reserves
including gold, foreign exchange, and IMF
position.
 Components of the
 Imports
trade
-bulk imports: petroleum, crude & products,
bulk consumption goods, other bulk items.
-non bulk imports: capital goods, mainly export
related items
 Exports

-agriculture and allied products, ores and

minerals, manufactured goods, mineral fuels.
Import proportion (in %)
45

40

35
petroleum, crude&
30 products
bulkconsumption
25 goods
otherbulkitems
20
capital goods
15
mainlyexportrelated
10
items
5

0
1970-71 1980-81 1990-91 2004-05
 Export proportion (%)
80
70
agriculture & allied
60 products
ores & minerals
50
40 manufactured goods
30
minerals fuels
20
others
10
0
1970-71 1980-81 2004-05
 Invisibles(%)
particulars 2003-04 2004-05
A. services 36.4 45.4
-travels 5.1 3.1
-transportation 3.2 .8
-software services 44.4 53

-miscellaneous (16.3) (11.6)

B. Transfers 76.8 66.8
C. Income (16.2) (12.2)
 BoP in five year
plans 300000

200000

100000

0
trade deficit
-100000 net invisibles
-200000 BoP

-300000

-400000
1st 2nd 3rd 4th 5th 6th 7th 8th 9th
plan plan plan plan plan plan plan plan plan
In 10 th
five year plan
150000

100000

50000

0 trade deficit
net invisibles
-50000
BoP
-100000

-150000

-200000
2002-03 2003-04 2004-05
 Countries with which
India trade  OPEC
 OECD - Iran
(1)European union - Indonesia
-France - Saudi Arabia
-Belgium - UAE
-Germany  Eastern Europe
-UK - Russia
-Italy  Developing countries
(2) North America - China
-Canada - Hong-Kong
-USA - South Korea
(3) Other OECD - Malaysia
-Australia - Sigapore
-Japan - SAARC
-Switzerland - Africa
- others
Direction of india’s
exports
developing countries
euopean union
eastern europe
OPEC

other OE C D
north america
Direction of india’s
imports
developing countries

european union
eastern europe

OPEC
north america
other OECD
 Thank you

Any
questions????????????